Retail Inflation Hits 2-yr High at 5.76% on Surging Food Prices

Retail inflation has surged to 5.76 percent in May from 5.47 percent in April due to rise in prices of food items like vegetables, pulses, sugar, meat and fish, shows the data released by the Central Statistics Office (CSO) on Monday.

Retail inflation has jumped for two consecutive months in May.

The food inflation has jumped to 7.5 percent from 6.4 percent in April. However, Core inflation moderated in May to 5.2 percent from 5.3 percent, led by lower inflation in clothing and footwear.

The rural inflation rose to 6.5% in May from 6.2% in April, due to sharp rise of food in rural areas, and urban inflation increased to 4.9% compared with 4.7% in previous month.

Pulses and products shot up 31.6 percent in May and sugar and confectionery prices rose around 14 percent in May on a year-on-year. Protein-rich items like egg, meat and fish prices also shot up. Price of Eggs sharply jumped at 9.13 percent in May as compared to 6.64 percent in April.

Prices of vegetable basket have gone double in the month of May to 10.77 percent as compared to 4.82 percent in April.

Urban consumer housing inflation has slightly plunged to 5.35 percent in May against 5.37 percent in April; Consumer price index (Rural) for housing is not compiled, said the CSO.

According to CSO data, Inflation in Fuel and light segment was slightly down at 2.94% in May compared with 3.03% in April despite crude oil prices for the Indian basket rose 4% in May.

Last week Reserve Bank of India (RBI) governor Mr. Raghuram Rajan has maintained the status quo in the second Bi-monthly Monetary policy review, cited higher upside risks to ‘inflation trajectory’.

Mr Rajan has said, "A strong monsoon, continued astute food management, as well as steady expansion in supply capacity, especially in services, could help offset these upward pressures. Given the uncertainties, the Reserve Bank will stay on hold, but the stance of monetary policy remains accommodative. The Reserve Bank will monitor macroeconomic and financial developments for any further scope for policy action."

Research house Crisil Research said, "After keeping its policy rate unchanged at 6.5% on June 7, the Reserve Bank of India (RBI) is in a wait-and-watch mode wanting further clarity on monsoon, global crude oil prices, macroeconomic and financial developments. The RBI signalled caution on inflation by underscoring an upward bias while retaining its April forecast. We expect the RBI to deliver another rate cut of 25 basis points this fiscal if price pressures cool off."

On wholesale front, wholesale price index (WPI) moved upwards by 0.79 percent in May against 0.34 percent in April and -2.20 percent a year ago during the same period, show the government data which released on Tuesday, this is the first monthly rise after 17 months of reduction.

Crisil further says we expect CPI inflation to stay soft at 5%, unchanged from last fiscal, assuming a normal monsoon and proactive food supply management by the government. A normal monsoon will soften food inflation and offset the upside risk to overall inflation from higher crude prices and sticky services inflation, so is crucial.

Source: Information has been obtained from CSO, RBI, Crisil Research.

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